A pseudonymous blog about Canadian law and politics.
This blog should not be relied on as legal advice.

Monday, September 03, 2007

Review of "The Common Sense Revolution" (1)

The Pithlord hates the folksy politician-speak found in the Introduction to 1994's "Common Sense Revolution" document as much as the next arrogant elitist. I am opposed to a "fresh look" at anything, let alone the principles of governance. I doubt I want even the most chaotic of polities to be more like my family.

But beneath the populist verbiage, "Mike Harris" puts forward two propositions which, I submit, are worthy of further attention. First, that too few people were working in Ontario in 1994, and the way to change that was to make it cheaper to hire them. And second, that the value received for each tax dollar had declined since 1984, and the way to reverse that decline was to spend less. We might agree that the historic value of the CSR depends on the truth of these two propositions.

The first proposition -- about employment -- goes to the heart of whether the CSR was good or bad for social cohesion. Pretty much every social problem is correlated with the number of jobless young men. Further, a society -- particularly a multi-ethnic society -- can only survive if there is a general sense that everyone is pulling their weight and their is some relationship between reward and effort. Through most of its history, Ontario has done well on both scores. The early 1990s were an exception, as anyone living there at the time can recall quite vividly.

The twin problems of high unemployment and low labour force participation were undeniable. The only reasonable subject of dispute was who or what was to blame for them. From the point-of-view of 2007, it is hard to deny the economic benefits of free trade with the US or inflation targeting by the Bank of Canada. But they did require a wrenching transition for the Ontario economy in the early 1990s. Defenders of the Rae government are not wrong to point this out.

However, neither monetary policy nor trade policy were within the control of the provincial government. The NDP could try to boost aggregate demand through deficits, but whatever they did, the Bank of Canada could neutralize it. Rae himself realized this after a year or two. There is no way to painlessly open up a protected economy or bring down inflation. But these macroeconomic factors will not cause mass structural unemployment if the labour market is flexible. The fundamental problem in Ontario in 1994 was that it was the very opposite. The NDP had basically made it impossible to legally create a new job.

Lack of employment has not been a major political issue for Ontario since the 1995 election. That, in itself, is as much of a tribute to the CSR as it needs. As a result, while I can't dispute that the Harris government was politically polarizing, I'd argue that it left Ontario a more socially cohesive place than it found it.

The second major point "Harris" makes in the Introduction is that government spending has diminishing marginal returns. I don't suppose anyone would argue otherwise in the abstract. For any level of spending, the last tax dollar be spent less effectively than the first, and the last tax dollar will cause more loss of private wealth than the first. I haven't attempted a close empirical comparison between outcomes for public services in 1984 and 1994, but my recollection corresponds to the assertion in the CSR that matters were not greatly improved. Doubling the tax take roughly quadruples the tax burden. So children should have been educated four times better in 1994 than in 1984, patients cured four times as fast and the streets been four times as safe to justify the spending explosion under Peterson and Rae. If someone wishes to claim such prodigious improvements in the comments box, they are welcome to do so.

So in initial defence of the CSR, I would say that it got to two critical issues -- employment and the effectiveness of the public sector -- and provided an essentially correct diagnosis and cure. Not bad.